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Religious Discrimination and Remedies
Mr. John Austin accordingly presented a Bill to render unlawful religious discrimination in employment and in the provision of certain types of goods, facilities and services and to make provision for appropriate enforcement; to create new offences relating to incitement to religious hatred; and for related purposes: And the same was read the First time; and ordered to be read a Second time on Friday 3 July, and to be printed [Bill 133].
ISAs, TESSAs and PEPs
Madam Speaker: I have selected the amendment in the name of the Prime Minister.
3.46 pm
Mr. Peter Lilley (Hitchin and Harpenden): I beg to move,
- That this House welcomes the success of TESSAs and PEPs in extending popular saving and deplores the Government's proposal to abolish them and replace them with Individual Savings Accounts (ISAs); condemns the retrospective taxation of the most prudent savers who have accumulated more than £50,000; believes that ISAs will involve high administrative costs, especially because of the unnecessary and unfair lifetime limit on tax-free saving; and urges the Government to bring forward new proposals that would not involve retrospective taxation, would build on PEPs and TESSAs, would reduce the costs of administering the schemes and would not involve a lifetime limit on the amount that may be invested.
Last spring, the Labour party told us--and told the British people--that it had changed. This was new Labour: the people's party. Middle Britain was safe with new Labour, and so were its savings. It was the Prime Minister--"Trust Me Tony" himself--who said:
"We want to extend the scope of PEPs and TESSAs, so the idea that the Labour party is going to take action against those is completely absurd."
Labour's manifesto reaffirmed that, stating:
"We will . . . extend the principle of Tessas and Peps to promote long-term saving."
And it was the current Chief Secretary to the Treasury who was reported by the Investors' Chronicle as saying:
"The party has pledged that anyone who invests in a PEP or TESSA before the general election . . . would not be penalised under a Labour Government."
The article went on to say that the Chief Secretary had reiterated Labour's promise that it would not retrospectively abolish tax incentives on PEPs or TESSAs.
"It doesn't matter what the issue is with tax,"
he said.
"People are entitled to certainty."
If that did not reflect the Chief Secretary's remarks accurately, he could have written to deny it. Actually, he did write a letter to the Investors' Chronicle, in which he said:
"You correctly quote me as saying, 'We support Peps and Tessas but we want to build on that.'
3 Mar 1998 : Column 863
However the assertion in the article that 'Labour is examining proposals to abolish PEPs and TESSAs' is not true."
-
That was the height of deception. The Chief Secretary chose to deny the one assertion in the article that has since proved to be true, that Labour would abolish PEPs; but he chose not to qualify his clear assurances--which have since proved bogus--that Labour would do nothing retrospectively, that there would be no penalty for those with existing PEPs or TESSAs and that there would be no uncertainty in the tax regime.
People with longer memories might have known how little Labour cares for their savings. They will remember the deadly combination of socialism and inflation, which destroyed Britain's savings habit in the 1970s.
Conservative Members are proud to have rebuilt savings in the 1980s and early 1990s. We did it, first, by building up pension funds, to the point at which the United Kingdom has more money invested in pension funds than does all the rest of the European Community put together. We introduced PEPs and TESSAs, and now 3 million people have PEPs and 4.5 million people have TESSAs. Those schemes have massively extended popular saving.
We realise, of course, that more people need to save, and that many of those who already have savings need to save more. The Government would therefore have enjoyed our support if they had built on the success of our schemes. However, far from building on those schemes--building them up--the Government's proposals will mean cutting them back. Individual savings accounts will take away relief from those who have saved most prudently, giving less help, for less time, for less saving.
The only silver lining in the Government's proposals is that they have decided to open up the proposals for consultation. Ministers may rather regret that decision, because the reaction of savers, savings providers and expert advisers has been universally critical. It is not only that the plans were announced by Geoffrey Robinson; they were designed by Heath Robinson.
People's criticisms go to the heart of the Government's proposals. The best advice that Ministers could take would therefore be to listen to the thousands of small savers who are telling them, "Go back to the drawing board, and build on PEPs. In fact, do exactly what the Prime Minister and the Chief Secretary promised they would do. They should simply honour their pledges."
The public have been most infuriated by the retrospective impact of the Government's plans. My postbag is full of letters from aggrieved savers, who thought that they were safe and trusted Labour. I do not know whether the Paymaster General reads such letters, but he certainly does not reply to them. Perhaps we should forward them to him in Guernsey. Nevertheless, he will have to listen to one or two of them today.
A typical example is a letter from a pensioner in Abergavenny, who writes:
Even if the Government will not listen, they must realise that to withdraw tax relief from savings that people made in good faith is not only wrong, but undermines the credibility of any future system. People will fear that if ISAs are successful, that regime too, could be changed. The Government must honour their contract with people who have saved in good faith.
Even if the £50,000 lifetime limit is not applied retrospectively, it remains the biggest problem in the ISA plan. There is no need for a lifetime limit, given that the annual limit on the amount that people can invest has been reduced, but if the Paymaster General insists on a lifetime limit, £50,000 is simply too low. The Paymaster General may consider it more than enough for humble folk not used to his style of life, but it is not a huge sum.
Another saver from Peterborough wrote:
We do not know how many hundreds of thousands of savers have already accumulated more than £50,000. The Government did not even bother to find out before launching the new scheme, but it is not just those who have already reached the limit who will be hit. We should be encouraging those with £30,000 or £40,000 to continue building up their savings, yet the Government's plans mean that after a few more years, they, too, will lose the incentive to save. Will the Government publish an estimate not just of how many people have already reached the £50,000 limit, but of how many will reach it over the next few years?
It is not just the public who oppose the scheme. The experts are virtually unanimous in giving it the thumbs down. That is not my assessment. A survey of finance directors carried out by the company of one of Labour's most prominent business supporters, Alec Reed, found that more than 70 per cent. were opposed to ISAs.
The scheme is half-baked, ill thought out, unnecessarily complex and unlikely to achieve its stated objectives--in short, very new Labour.
Criticisms come from people who are well disposed to the Government. Richard Branson condemned it as "retrospective". The Financial Times said that it was
At the same time as driving up costs, the Government are reducing the tax relief in ISAs, particularly for small savers on the basic rate, whom they are supposed to attract. For such savers, relief from capital gains tax is likely to be of no importance, because they are unlikely to have capital gains greater than the £6,500 annual CGT exemption that they get outside an ISA. The tax relief that really matters to them is that on dividends.
Under the Conservatives' tax regime, for every £80 of net dividends, the fund manager could reclaim an additional £20 of tax credits. That was more than enough to cover the typical management charge. Under the ISA tax regime, the same dividends will give a credit of only £8.90. That is insufficient to cover the current costs of PEPs, let alone the higher costs of ISAs. Moreover, that tax credit will disappear after five years. I am glad to see that the Paymaster General is briefing the Chief Secretary, who was clearly unaware of the point. We know that he has been cut out of the circulation on welfare to work. He has clearly also been cut of the circulation of information on the debate that he is about to speak in.
"This punitive tax proposal, in my view, breaks a contract which we established with a previous Government and it is neither just nor defensible."
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A gentleman from Chester sent me a copy of his letter to the Prime Minister. He wrote:
"We have worked hard, saved and planned for our retirement on the assumption that whatever steps we have taken would be honoured by whichever party was in power at the time. We have paid our taxes and behaved as responsible citizens and now your Government--the one we were asked to trust remember--has broken the contract between the state and those people who have more than £50,000 in PEPs."
The Government said that education was to be their passion. Some teachers in Birmingham disagree. They write:
"We are retired teachers who thoroughly enjoyed our chosen profession and who, during the later years of employment, made a conscious decision to save as much as we could from our salaries through PEPs and TESSAs towards our old age. Unlike the Paymaster General, we do not have a large offshore trust, a mansion in Surrey, a residence in Godalming or a villa in Tuscany.
I could go on. We have all received heaps of such letters.
We are just very ordinary members of the public who welcomed the opportunity by the Conservative Government to invest for our futures. Through careful planning and by putting prudence before pleasure we have been able to save in excess of the £50,000 limit now being proposed by Mr. Robinson."
"I may have to spend the final years of my life in a nursing home where fees are approximately £20,000 per annum, so £50,000 will last just two and a half years."
The Paymaster General himself admitted in reply to my right hon. Friend the shadow Chief Secretary that £50,000 invested in equities yields an annum income of less than £1,500 after tax. The Lord Chancellor would not get many rolls of wallpaper for that.
"unfair . . . unattractive . . . and bureaucracy gone mad".
The Sunday Times said:
"ISAs will be the most complex instant access accounts ever."
The Consumers Association said:
"We are struggling to see the point of ISAs. We see no real advantages but a lot of problems."
The only possible justification for persisting with the reform would be if it generated more saving. The National Institute of Economic and Social Research is unequivocal about that, saying:
"The Government's proposed replacement of PEPs and TESSAs by Individual Savings Accounts would reduce the pool of savings available to finance investment in Britain."
and speculates
"that this could result in a reduction in the overall level of national wealth by as much as 4 per cent. of GDP".
ISAs could hope to attract extra savings, particularly from the less well-off, only if they offered either lower costs or better incentives, but far from reducing costs, the new rules will add to them. According to the management consultants OSI, setting up new systems to replace PEPs and TESSAs will cost nearly £1 billion. That is equivalent to an extra £30 a year for every ISA for the next five years. Running costs would also be higher than for PEPs and TESSAs because the lifetime limit is very costly to monitor, the profusion of annual limits adds to the costs and the absurd raffle will also cost money to run.
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